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Extensions of time post completion where contractor is culpable for the delay

June 2016 - Issue 82

In Carillion Construction Ltd v Woods Bagot Europe Ltd and others [2016], the Technology and Construction Court considered how to put into effect an extension of time granted to a contractor where the contractual completion date has already passed.

Where an extension of time is granted during a period of delay caused by the contractor, the extension may mean that the length of delay will change. For example, if the contractual completion date is set as 31 January, a delayed contractor will breach the contract on 1 February. However, if a relevant event occurs on 15 February which results in an extension of time of 28 days, this would mean the contractor is not in breach until 28 February which may mean a reduced total period of breach, or no breach at all. This can significantly alter the level of damages due from the contractor for late completion.

In Carillion Construction Ltd the court held that a sub-contractor, EMCOR, was entitled to an extension of time and that the extension should run from the current contractual completion date, i.e. contiguously, so that the extension was added on to the contractual completion date to provide an aggregate period for the sub-contract works; rather than fixing a further period from the date that the relevant event giving rise to the permitted extension occurred. The result was that the period in which EMCOR had defaulted was extinguished so that it was no longer liable for delay.

Background

Carillion (the contractor) was engaged by Rolls Development UK Ltd (the employer) to build the High Court’s Rolls Building in London, which currently houses the Technology and Construction Court among others. The building contract between the parties incorporated the JCT Standard Form of Building Contract, with Contractor’s Design 1998 Edition (incorporating amendments 1 to 4), plus additional bespoke amendments.

Delays occurred to the main contract. Carillion started court proceedings against EMCOR claiming, among other things, damages caused by EMCOR’s delay. This included Carillion’s own costs and Liquidated Damages (‘LDs’) levied against it under the main Contract.

At the hearing of legal arguments which the TCC had arranged to be heard as preliminary issues, Carillion argued that where a ‘relevant event’ giving rise to an extension of time entitlement occurs after a contractual completion date has passed and the sub-contractor is already in a period of culpable delay, the extension of time should run from the date of the ‘relevant event’. This would mean that EMCOR would be responsible for any loss or expense suffered by Carillion prior to the relevant event occurring.

Decision

The court held that an extension of time award should be contiguous; thereby running from the contractual completion date for the period of extension granted. The JCT contract wording of “fixing such revised or further revised period... as the Contractor then estimates to be reasonable" envisaged shortening or lengthening the period for completion, not granting an extension of a discontinuous period of time.

Whilst the result of this was that EMCOR was relieved of liability for LDs, this did not negate the fact that the interpretation of the contract terms in this way accorded with commercial common sense. The court considered that it reflected what a reasonable person with all the background knowledge would have understood the terms to mean at the time of agreeing the contract.

Conclusion

The court’s interpretation, reflecting earlier case law on the same point, may have the effect that a sub-contractor is relieved of liability to an extent that does not truly reflect the consequences of his breach, in that the period of breach (between the original date of completion and the date of the relevant event resulting in an extension of time) is not accounted for. The opposite may also be the result, with more losses being recoverable than might properly be attributed to a sub-contractor’s delays.